While Cambridge technology and industrial businesses led by ARM, Johnson Matthey and Domino Printing Sciences report record investment in R & D, Nesta – the innovation foundation – says the nation has suffered a ‘lost decade’ with investment in innovation falling by £24bn.

The Nesta figures don’t break down to individual companies but highlight the importance of manufacturing to innovation. Although it only represents 17 per cent of GDP, the sector accounted for 77 per cent of business investment in R & D and 23 per cent of total business innovation investment, Nesta told Business Weekly.

The picture elsewhere is gloomy: Nesta’s Innovation Index shows that after rising in the 1990s, investment in innovation fell between 2000 and 2008 and has been severely hit by the recession.

Nesta calls for a new conversation about economic growth. It says the lost £24bn is five times the amount the Government spends each year on science and technology research.

The new report shows that innovation investment fell by seven per cent or £7.4bn between 2008 and 2009, as the recession began. A further fall of 14 per cent, or £17bn, from 2009 to 2011, was logged.

After rising steadily from 1990 to 2000, innovation stagnated from 2000-2008 at 12 per cent of private sector output, Nesta reports.

Nesta says the figures should act as a wake-up call for government and business as innovation is one of the most important drivers of sustainable economic growth. Between 2008 and 2009 innovation delivered 63 per cent of the UK’s economic growth.

Geoff Mulgan, Nesta’s CEO, said: “Everyone agrees that innovation is the only route to long-term growth. The concern is that our report and Investment Index show that investment in the future didn’t just fall during the immediate aftermath of the financial crisis, but also continued falling as the economy appeared to stabilise.”

Only 13 per cent of innovation investment now takes the form of R & D. Other important types of innovation investment captured in the index include design, software development, innovative training and organisational development.

Mulgan added: “Other countries are making investment in innovation a top priority and the UK cannot afford not to do the same. Our data shows that British business prioritised cash and concrete over investment in future technologies and services – a potentially disastrous decision that now needs to be put right.

“Over the next few months we’ll be setting out the details of what we call Plan I – a plan for innovation-led growth – as an alternative to the increasingly sterile debate between Plan A and Plan B.”

Relative to their size, the biggest innovation investors among the UK’s sectors are manufacturing, personal services and financial services. The lowest investors in innovation are agriculture, mining and construction – although the construction sector spends the most on design.

The business services sector’s largest investment is in skills and organisational innovation.

• PHOTOGRAPH SHOWS: Geoff Mulgan, CEO of Nesta